In times of market volatility, risk-based investments can face significant fluctuating changes, which is why many people rely purely on building up savings for the future. But looking at the rising level of inflation, the natural question arises whether these savings would be enough to have a peaceful retirement.
But if you are a risk-averse investor who wants to test the waters of a unique form of investment that provides the dual benefit of investment and insurance, choose a ULIP policy.
This article helps you make decisions as to when and how your money should get invested through the unit linked investment plan. It will also act as a complete guide on everything you need to know about how a risk-averse individual should invest in ULIPs.
Switching to Ride Out a Volatile Market
In ULIP policy, you can switch between the investment fund to balance your portfolio based on the fluctuations of markets and maximise returns. ULIP insurance allows this convenient option for investors to protect investments, considering risk appetite, volatility of the stock market, and financial goals.
- How can you use switching between ULIP as a risk-averse investor?
- You should be focused on market fluctuations, and in case you see a dip in the market, it is better to switch a large portion of your investment to a debt fund. Similarly, switch your plan back to equity when the market picks up again.
- Another scenario will be if you are close to maturity or approaching a critical milestone where you require a portion of finance. In such cases, switching those funds to safe funds, such as debt funds, is better. Ensuring the part of the investment is secure and guarantees stable returns at the time of maturity or withdrawals.
Asset Allocation Based on Age
The asset allocation of ULIP investment should vary depending on age because there is a difference in investment goals and risk tolerance at different stages of life.
| Age Group | Investment Horizon | Risk Tolerance | Asset Allocation |
| Younger Individuals | Longer | Willing to take on more risk | Higher allocation towards equity and equity-related instruments |
| Individuals Approaching Middle Age | Medium | Prioritise capital preservation and income generation | More balanced allocation between equity and debt instruments |
| Individuals Nearing Retirement Age | Shorter | Prioritise capital preservation and stable income | Higher allocation towards debt instruments such as bonds and fixed deposits |
Check on the Flexibility of Self-service
As an averse investor, it’s better to have control over the fund, especially when you want to switch your ULIP insurance fund. You should check the self-service facilities and controls provided by your insurer on their customer portal and whether they have a secure process for switching during asset allocation. This will help you to reduce the risk of misuse of the system.
Please note that such additional or exclusive features often come with an additional charge. While you can easily get the term insurance premium using a ULIP calculator, these charges may not be considered by the tool. It is better you talk to your insurance provider for transparency.
Availability of Automatic Switch Option
Not everyone understands the stock market nor has time to track market fluctuations. As a result, some insurers offer asset allocation fund options or automatic switch options. In the asset allocation fund, a fund manager is responsible for switching between funds depending on your market condition. In the automatic switch option, investment is managed automatically in a predefined way defined in the system.
Conclusion
ULIP insurance policies are incredible funds that offer the dual benefit of investment and insurance with control over the risk capacity of investment. Therefore, investing in ULIP becomes a versatile financial product for an individual who wants to invest in the market and ensure the family’s security in case of untimely death.